Raising funds for your business
There are a number of ways of raising start-up or expansion funding for your business. Before you set out, you need to know what your options are, including:
- Using your own funds
- Westpac loans
- Government grants
- Finance company loans
- Equity financing
- Venture capital
- Public raising.
Using your own funds
If you’ve got a big enough lump sum available, this can seem to be a good option as you won’t have to pay interest, and you’ll keep control over your business. But tying up all your spare cash in the business may not be the best approach, and to get your business up and running properly may require more cash than you have available. In which case, you’ll need to look elsewhere.
Westpac loan
If you do need to look elsewhere to raise funds, Westpac has a range of award winning finance solutions to meet your needs. Our fixed rate loans will offer you certainty over your repayments, while variable rate loans allow you the flexibility of reducing your interest repayments and paying off your loan sooner. Alternatively a business overdraft may tie you over until your business starts making money. The good news is your interest payments are generally tax deductible.
Review your options
Government grants
If you’re just starting out, it’s worth investigating whether you’re eligible for a grant from the federal, state or territory governments. A good place to start is Government’s Business Entry Point and GrantsLINK.
Finance companies
Finance companies can be the place to go if your business looks like being a risky venture or you’ve been knocked back by a bank. Typically they’ll lend money for more risky ventures than the banks, and so they’ll charge a higher interest rate. If you approach them, they’ll want to know about your collateral, your track record and the potential of your new business.
Equity financing
With equity financing, private investors provide you with funding for your business, in return for a share of the business ownership. The advantage for you is that there’s no loan and no legal obligation to repay the money that’s been invested. Your investors will get a percentage of the business and the associated profits and losses.
This can be an ideal solution as long as you’re comfortable with giving up full control of the business. So you need to make sure you negotiate the best possible deal for yourself.
Potential investors will want to see a business plan that shows there is a market for your product or service, how you will produce and deliver it, and any risks associated with the business. You should also identify what type of investor you’re looking for, how much money you’re after and how you’ll use it, and the value of your business. You also need to let your investors know what they’ll get in return for their investment.
Venture capital
If you’re developing innovative products or looking to commercialise them, it’s worth investigating venture or development capital companies. These firms are looking to invest in business opportunities that they think will be successful. They usually have specific guidelines on what they will invest in, and are looking to invest amounts of over $2 million into a business.
You can research these firms through the Australian Venture Capital Guide, an annual publication listing the majority of these firms and their criteria.
Visit the Australian Venture Capital Association Limited for more information.
Public raisings
If you’re looking to raise a large amount, say, more than $5 million, you might want to consider listing your company on the Australian Stock Exchange. There are significant costs involved, typically over $500,000. And of course you need to consider the implications of becoming a publicly listed company.
